Latest / Root Ready / The Cockpit Problem: Why Clients Feel Lost in Your Financial Plan

Transcript

The Cockpit Problem: Why Clients Feel Lost in Your Financial Plan · Root Ready

• 0:00
  SPEAKER_00: Welcome back to another episode of the Root Ready Podcast.
• 0:02
  SPEAKER_00: I'm your host, James Cannoll.
• 0:04
  SPEAKER_00: By the time you, as an advisor, have run dozens of plans, hundreds of plans, these plans start to seem pretty simple.
• 0:10
  SPEAKER_00: And in some cases, quite honestly, these plans start to seem somewhat boring.
• 0:14
  SPEAKER_00: You've seen them so many times, you've gone through the numbers so many times, everything seems so clear.
• 0:19
  SPEAKER_00: The issue is your client, when you're presenting that plan, is seeing things through a completely different lens.
• 0:26
  SPEAKER_00: And so what we have to do as an advisor is we have to be able to separate ourselves, take a big step back and understand as we are presenting a plan, don't see it through the lens of what do I see.
• 0:36
  SPEAKER_00: Try to see it through the lens of what the client sees.
• 0:39
  SPEAKER_00: So that's the topic of what we're talking about today.
• 0:41
  SPEAKER_00: We're talking about how do you go way back to high school, taking a principal from algebra to say, how do you isolate the variable?
• 0:48
  SPEAKER_00: How do you isolate the variable of a plan to help give better financial advice to your clients?
• 0:52
  SPEAKER_00: Let's walk through an example of what I mean here.
• 0:54
  SPEAKER_00: You're presenting a plan to a client.
• 0:57
  SPEAKER_00: Now you know that this plan is built upon hundreds of assumptions.
• 1:00
  SPEAKER_00: This client probably also knows that this plan is built on hundreds of assumptions.
• 1:05
  SPEAKER_00: You have everything from inflation rate, how long will they work?
• 1:07
  SPEAKER_00: How much will they save?
• 1:08
  SPEAKER_00: How much will they spend today?
• 1:09
  SPEAKER_00: How much will they spend in retirement?
• 1:11
  SPEAKER_00: How will that spending change over the course of retirement?
• 1:13
  SPEAKER_00: What are investment returns going to be?
• 1:16
  SPEAKER_00: What are tax rates going to be today?
• 1:17
  SPEAKER_00: What are tax rates going to be in the future?
• 1:19
  SPEAKER_00: How long will they live?
• 1:20
  SPEAKER_00: What will Social Security do?
• 1:21
  SPEAKER_00: All these different things.
• 1:22
  SPEAKER_00: These are all assumptions we have to make if we want to present some type of a financial plan.
• 1:27
  SPEAKER_00: That's completely fine.
• 1:28
  SPEAKER_00: Here's where the issue comes in is you can look at all those assumptions and naturally have an understanding of which ones are actually impactful to the success or failure of the plan and which are not.
• 1:38
  SPEAKER_00: The client, because they have not gone through dozens and dozens and dozens or hundreds and hundreds of reps of presenting this plan, they have no idea which of these variables actually matter.
• 1:48
  SPEAKER_00: And so, because of that, they might start to believe that all these variables are created equal.
• 1:53
  SPEAKER_00: All these assumptions are created equal.
• 1:55
  SPEAKER_00: And changing one over here is gonna have the exact same impact as changing another over there.
• 1:59
  SPEAKER_00: So the beauty of planning is all these assumptions that we get to make to illustrate what life can look like.
• 2:05
  SPEAKER_00: The challenge of planning is we have all these assumptions that we need to make to illustrate what life can look like.
• 2:10
  SPEAKER_00: So, what is the principle that we want to look at here?
• 2:12
  SPEAKER_00: The principle is going back to what I just said.
• 2:15
  SPEAKER_00: Go back to your algebra class, go back to those equations you looked at.
• 2:18
  SPEAKER_00: And what did your teacher always tell you to do?
• 2:20
  SPEAKER_00: Your teacher told you to take this big giant equation and isolate the variable.
• 2:24
  SPEAKER_00: How do you isolate that variable?
• 2:26
  SPEAKER_00: How do you solve for a specific unknown in an equation and show the impact on the rest of the equation, show the impact on the rest of the plan when that variable is toggled or that variable is changed?
• 2:37
  SPEAKER_00: That's exactly what we're doing here.
• 2:38
  SPEAKER_00: Think back on some financial plans you've seen.
• 2:40
  SPEAKER_00: I remember financial plans at my old firm when we used to present them, we would print the whole thing out.
• 2:44
  SPEAKER_00: And at the beginning of these plans were pages and pages of assumptions.
• 2:48
  SPEAKER_00: Now, in many cases, that was probably done for compliance purposes.
• 2:51
  SPEAKER_00: Okay, here's all the assumptions just so that you know that these illustrations we're making, here is the foundation of those illustrations.
• 2:57
  SPEAKER_00: Here's what we are assuming those to look like so that we can see what might the future hold.
• 3:02
  SPEAKER_00: You look at that and say, okay, this is just for compliance, or of course, those are the assumptions, but that's all they are.
• 3:07
  SPEAKER_00: The client looks at and immediately feels overwhelmed.
• 3:09
  SPEAKER_00: And think of it this way: you walk through an airplane.
• 3:12
  SPEAKER_00: Before you go back to your seat, you look into the cockpit and you see just this dashboard filled with hundreds of dials and knobs and things that just seem completely overwhelming.
• 3:21
  SPEAKER_00: How on earth does anybody know which of these to pull, which of these to turn to get a flight off the ground?
• 3:27
  SPEAKER_00: Now, a pilot walks in there, they've seen this thing a thousand times.
• 3:30
  SPEAKER_00: So to them, it's no big deal.
• 3:31
  SPEAKER_00: 99% of these I don't even have to think about, but it's these here that I need to focus on.
• 3:35
  SPEAKER_00: And it's these here that actually drive the outcome of this flight.
• 3:39
  SPEAKER_00: That's the perspective that we have as advisors.
• 3:42
  SPEAKER_00: We look at that dashboard and say, hey, it's no big deal.
• 3:44
  SPEAKER_00: 99% of these things we don't even really need to worry about.
• 3:46
  SPEAKER_00: It's the 1% that actually matter.
• 3:49
  SPEAKER_00: Well, your client doesn't see it that way.
• 3:51
  SPEAKER_00: Your client is more like that passenger going onto an airplane, seeing that dashboard and feeling completely overwhelmed and what on earth is going on here.
• 3:57
  SPEAKER_00: And thank goodness there's a pilot here to guide us.
• 4:00
  SPEAKER_00: But that's not our job as advisors.
• 4:02
  SPEAKER_00: Our job as advisors isn't to overwhelm people with information, to say, here, I got this.
• 4:06
  SPEAKER_00: You just go take a seat in the back, we're gonna get you there.
• 4:08
  SPEAKER_00: To do financial planning right, the client must be involved.
• 4:11
  SPEAKER_00: The client needs to understand what's going on.
• 4:12
  SPEAKER_00: They don't need to understand every last detail, but it is very important that we can help them understand which of these variables on this dashboard, all these knobs we can turn, all these levers we can pull, which actually matter to the success or failure of your plan.
• 4:26
  SPEAKER_00: That matters so you can help organize their thinking, so that you can help shape decision making and do so in a way that allows the client to move further in the direction of the goals they want to accomplish.
• 4:36
  SPEAKER_00: So when you're presenting that plan, we use right capital, for example, at Root Financial.
• 4:41
  SPEAKER_00: If we show a client a projection, whether that projection is good, bad, somewhere in between, it doesn't matter.
• 4:46
  SPEAKER_00: What I want to help illustrate to them, and this might be in an initial meeting, this might be in an ongoing meeting, I want them to understand the impact.
• 4:54
  SPEAKER_00: What is gonna be the biggest variable that has the biggest impact on the final outcome?
• 4:58
  SPEAKER_00: So we're gonna go through this plan.
• 4:59
  SPEAKER_00: Okay, Mr.
• 5:00
  SPEAKER_00: Client, Mrs.
• 5:00
  SPEAKER_00: Client, here's your plan.
• 5:02
  SPEAKER_00: Um, I just want to show you.
• 5:03
  SPEAKER_00: Here's what happens if we change your savings rate.
• 5:06
  SPEAKER_00: You know, you're saving 10% tier 401k.
• 5:08
  SPEAKER_00: What if we bump that to 12?
• 5:09
  SPEAKER_00: What if we bump that to eight?
• 5:11
  SPEAKER_00: Just to illustrate the impact of that.
• 5:13
  SPEAKER_00: Sometimes that's gonna have a big impact, sometimes that's gonna have a small impact, but it's important for them to know that.
• 5:18
  SPEAKER_00: What if we change the date of your retirement, for example?
• 5:21
  SPEAKER_00: You say you want to retire at 65, here's what things might look like at 68, here's what things might look like at 62, just to illustrate.
• 5:28
  SPEAKER_00: What if you change the assumed rate of spending in retirement?
• 5:31
  SPEAKER_00: You say you want to spend$8,000 per month, let me show you what happens if you spend$10,000 per month.
• 5:36
  SPEAKER_00: Now, here's what I am saying, here's what I'm not saying.
• 5:39
  SPEAKER_00: I'm not saying that every single client, you need to go through every single assumption and make them understand every single aspect of what variables have the biggest impact on their plan.
• 5:47
  SPEAKER_00: What I am saying is that for people to make the right decisions about their retirement, they need to understand what are the levers that have most consequence, both in a positive sense and potentially in a negative sense.
• 5:59
  SPEAKER_00: And don't just do this to do this.
• 6:00
  SPEAKER_00: Here's why it matters.
• 6:01
  SPEAKER_00: Let's assume that you have a client that's 60 years old and they really want to retire at the age of 62 and they're saving 10% to their 401k.
• 6:08
  SPEAKER_00: You show them a plan and you show, you know what, you're probably not gonna be able to do this.
• 6:12
  SPEAKER_00: Here's your projection, you're gonna have a significant shortfall.
• 6:15
  SPEAKER_00: And let's just assume you stop there.
• 6:18
  SPEAKER_00: Sorry, Joe, you can't make this happen.
• 6:20
  SPEAKER_00: Um, just wanted to illustrate why.
• 6:22
  SPEAKER_00: Assume you stop there, they might be thinking, okay, well, geez, maybe I just need to go ramp up my savings.
• 6:26
  SPEAKER_00: So I'm gonna start uh bumping my 401k contributions to the max.
• 6:30
  SPEAKER_00: I'm gonna start saving a whole bunch of money to a brokerage account outside of that.
• 6:33
  SPEAKER_00: I can think through that and realize, okay, well, Joe, you're only doing that from age 60 to 62.
• 6:37
  SPEAKER_00: Probably not that impactful.
• 6:39
  SPEAKER_00: So, what I can see that Joe can't write here is that's one of those dials that's really not that important at that stage of life.
• 6:45
  SPEAKER_00: If you're only saving for two more years, you don't have that much leverage because you're only saving for two years to make a significant difference in your plan.
• 6:52
  SPEAKER_00: So if Joe goes home and says, Well, I'm gonna fix this thing, I'm gonna start saving a whole lot more, I have failed him as an advisor because I have let him think that that's gonna get him to where he needs to go.
• 7:01
  SPEAKER_00: Now let's assume instead of talking to Joe, I'm talking to Sally.
• 7:04
  SPEAKER_00: Sally also wants to retire at 62, has the same spending goals at age 62, but she's only 40 years old, not 60 years old.
• 7:12
  SPEAKER_00: Now, for Sally, her savings rate is probably the single most important thing to her plan.
• 7:17
  SPEAKER_00: She has 22 years of savings, 22 years of that savings being compounded in the market.
• 7:22
  SPEAKER_00: That is a significant impact on her plan.
• 7:25
  SPEAKER_00: So, as I do this, as I help them to isolate the variable, what are the most impactful things to you?
• 7:30
  SPEAKER_00: What we really want to do as advisors is help our clients think about money less in some ways.
• 7:36
  SPEAKER_00: If they're thinking through, gosh, how much am I saving my Roth?
• 7:38
  SPEAKER_00: How much am I saving my 401k?
• 7:39
  SPEAKER_00: How much of a raise am I gonna get this year?
• 7:41
  SPEAKER_00: How long am I gonna live?
• 7:43
  SPEAKER_00: What are my market returns this year?
• 7:45
  SPEAKER_00: All these things are really important things.
• 7:47
  SPEAKER_00: But we as an advisor have to help them understand some of these are just out of your control.
• 7:51
  SPEAKER_00: We're gonna do everything we can to optimize for this, but then we have to set that aside because we can't control it.
• 7:55
  SPEAKER_00: Then for the things that are in our control, how do I help you focus on the single two or three most important things so we can let everything else go?
• 8:05
  SPEAKER_00: Not let it go in the sense that we're never gonna look at it again, we're never gonna focus on it again, but we need to prioritize the things that are impactful.
• 8:11
  SPEAKER_00: We need to prioritize the things that will have the biggest impact so that we can help the client move closer to their goals.
• 8:18
  SPEAKER_00: The message we're sending is don't focus on a hundred things.
• 8:20
  SPEAKER_00: It's gonna drive you crazy.
• 8:22
  SPEAKER_00: And a lot of these things you don't even need to focus on.
• 8:24
  SPEAKER_00: Focus on this one, focus on this two.
• 8:26
  SPEAKER_00: What are the things that have the most impact focus there?
• 8:29
  SPEAKER_00: Now, here's the other reason this is so important.
• 8:31
  SPEAKER_00: My guess is some of you have had meetings where you felt like that went really well.
• 8:35
  SPEAKER_00: We went through the client's plan, we were using e-money or right capital, money guide pro, whatever it was.
• 8:40
  SPEAKER_00: I always toggling all sorts of things.
• 8:41
  SPEAKER_00: Look what happens if you work until this age, look what happens if you save this amount, look what happens if one of you lives that long or this long.
• 8:48
  SPEAKER_00: You're feeling really good.
• 8:49
  SPEAKER_00: And as you wrap up the meeting, the client kind of says the equivalent of, so what?
• 8:54
  SPEAKER_00: You know, what do I do with all this information?
• 8:55
  SPEAKER_00: You just showed me all these toggles, you showed me all these things.
• 8:58
  SPEAKER_00: What should I actually be doing?
• 9:00
  SPEAKER_00: Now, here's the thing the client probably enjoyed the meeting.
• 9:01
  SPEAKER_00: They probably enjoyed seeing all those things.
• 9:03
  SPEAKER_00: They probably enjoyed seeing what was possible, but there's no so what to it.
• 9:07
  SPEAKER_00: There's no, okay, what should I do because of all this information?
• 9:09
  SPEAKER_00: It'd be the equivalent of stepping into the cockpit and the pilot saying, you know what?
• 9:12
  SPEAKER_00: Look, if I hit this button over here, uh, I don't know, the turbo comes out of this engine of this plane.
• 9:17
  SPEAKER_00: If I hit this cockpit over here, it tells the uh hostess to come up and say, I don't know what those buttons do in the cockpit.
• 9:24
  SPEAKER_00: But you see that and it's like, okay, cool, this is really amazing.
• 9:27
  SPEAKER_00: But if the pilot was then to say, well, what should we do to actually take off?
• 9:30
  SPEAKER_00: You would say, I don't know.
• 9:32
  SPEAKER_00: I don't actually know what the next steps are.
• 9:33
  SPEAKER_00: I don't actually know what's most important.
• 9:34
  SPEAKER_00: You just kind of gave me a little bit of a show to show me what's possible, but I don't actually know what to do from here.
• 9:40
  SPEAKER_00: That is why isolating the variable isn't just helpful to let the client know what they don't need to think about.
• 9:46
  SPEAKER_00: It's very helpful because if you're not doing this, you might think you're driving a great meeting.
• 9:51
  SPEAKER_00: You might think you're helping the client by showing all the cool things your software can do.
• 9:55
  SPEAKER_00: But if that can't be distilled down into the so what of it all, the focus on this of it all, it's really not doing much good.
• 10:01
  SPEAKER_00: In fact, in some cases, it might just be confusing clients, thinking these are all the things they need to be focused on if they want their financial plan to happen.
• 10:08
  SPEAKER_00: So this is why, whenever possible, in every meeting, if you can end it with a direct follow-up, the client's going to feel more confident.
• 10:15
  SPEAKER_00: It could be as simple as increase your 401k contributions from the 5% that you're doing to 7%.
• 10:21
  SPEAKER_00: That should put you on great track to retire.
• 10:23
  SPEAKER_00: Perfect.
• 10:24
  SPEAKER_00: All that stuff we reviewed, go through everything.
• 10:26
  SPEAKER_00: Here's the single most important thing you can do.
• 10:28
  SPEAKER_00: Or the most important thing could be, you know what, based upon what we're looking at, my recommendations, let's plan to work for another three years, collect social security in five years, and that's probably the thing that's going to put you on track.
• 10:37
  SPEAKER_00: Perfect.
• 10:38
  SPEAKER_00: A super simple takeaway after showing all that's possible.
• 10:42
  SPEAKER_00: Or maybe their simple action step is stop saving for retirement.
• 10:45
  SPEAKER_00: You know, the client's six years old, they want to retire at 65, they already have enough in their portfolio to be on track to retire at 65.
• 10:52
  SPEAKER_00: Awesome.
• 10:52
  SPEAKER_00: Hey, you know what your action item is, your homework is, Mr.
• 10:55
  SPEAKER_00: and Mrs.
• 10:55
  SPEAKER_00: Client.
• 10:56
  SPEAKER_00: Stop saving to your 401k, stop to saving to your brokerage account, start taking really cool family trips today.
• 11:01
  SPEAKER_00: Start doing some of those home improvements today.
• 11:04
  SPEAKER_00: You've hit your goal.
• 11:05
  SPEAKER_00: You've hit the goal of how much you want to save.
• 11:07
  SPEAKER_00: My only recommendation for you right now is to stop saving and start spending this money on something that's meaningful for you.
• 11:14
  SPEAKER_00: Again, take all this stuff that we're looking at and distill it down to what's the single most important thing you can do going forward.
• 11:20
  SPEAKER_00: So the goal of this episode is just to keep this in mind that what you are looking at when you're looking at financial planning software is the exact same thing that your client's looking at, but you're not seeing the same picture.
• 11:31
  SPEAKER_00: You're seeing two completely different things.
• 11:33
  SPEAKER_00: You're feeling two completely different ways, in the same way a passenger looking at the cockpit feels a completely different way than the pilot.
• 11:40
  SPEAKER_00: So as you look at this, show this.
• 11:42
  SPEAKER_00: Show the client what you can do.
• 11:43
  SPEAKER_00: This is the beauty of financial planning software.
• 11:45
  SPEAKER_00: You can visualize in real time what is possible based upon making some tweaks to those assumptions.
• 11:52
  SPEAKER_00: But never let that replace your advice.
• 11:54
  SPEAKER_00: The advice always needs to be something very practical, very simple.
• 11:57
  SPEAKER_00: Do this because this is the single most impactful thing that you can do to stay on track with your planning goals.
• 12:04
  SPEAKER_00: So that is it.
• 12:05
  SPEAKER_00: If this podcast is helpful to you at all, would really appreciate it if you leave a review.
• 12:09
  SPEAKER_00: If you're listening to the podcast, it's also available on YouTube.
• 12:12
  SPEAKER_00: Root Ready is the YouTube channel name that you can go subscribe to, that you can leave a comment, share it with a friend if they would benefit from this as well.
• 12:19
  SPEAKER_00: And also connect with me on LinkedIn, on Instagram and TikTok if you're in any of those places.
• 12:23
  SPEAKER_00: Want to make sure that we're connecting wherever you are.
• 12:26
  SPEAKER_00: But thank you for listening.
• 12:27
  SPEAKER_00: That's it for today, and I'll see you all next time.